Now that Fannie Mae and Freddie Mac are profitable again, they will be able to recognize all or a portion of their deferred tax assets, which could result in a “large one time dividend payment” to the U.S. Treasury, according to a new Office of Inspector General report.
The Federal Housing Finance Agency OIG report released early Wednesday morning shows that Fannie is holding $61.5 billion in tax deferred assets in a valuation allowance account and Freddie is holding $31.7 billion in DTAs in a valuation allowance.
Fannie wanted to recognize the DTA’s assets in its fourth quarter results. But it appears the GSE regulator is objecting.
In a March 14 securities filing, Fannie said it delayed the release of its fourth quarter results because it needed additional time to analyze whether the accounting rules require the “release of any portion of the valuation allowance on its deferred tax assets in the fourth quarter of 2012.”
Freddie did not try to recognize its DTAs in the fourth quarter, according to the OIG report. In future periods, Freddie “will assess the need for a reduction of its valuation allowance, which could have a material effect on its financial position.”
Freddie has reported $11 billion in net income for 2012, compared to a loss of $5.2 billion in 2011.
Fannie has reported $9.7 billion in net income for the first three quarters of 2012, compared to a $14.4 billion loss during the first nine months of 2011.
The OIG report warns that the valuation allowance would have to be reversed if a GSE begins losing money again and another valuation allowance would have to be established for the tax deferred assets. “Such an allowance would magnify negative net worth and could require another draw from Treasury to avoid insolvency.”